Exam 32: Consumer Theory With Indifference Curves

In terms of indifference curve analysis,equilibrium occurs at the point of tangency of the indifference curve and the demand curve.

Other things being equal,if there is a price increase of a good measured on the vertical axis,the budget constraint shifts outward.

A curve showing different combinations of two products that give a consumer the same satisfaction is

A typical budget line is

A budget line indicates different combinations of two products that can be purchased by a consumer with a given budget.

Suppose you are having a dinner party and you have 15 cans of cola in your refrigerator.Five are diet colas and the others are regular colas.A neighbor comes to you and ask you to trade some diet colas for regular colas.You agree to trade two diet colas for three regular colas.An hour later,the neighbor comes back and asks for two more diet colas.This time you agree to trade two diet colas for four regular colas.What property of indifference curves is illustrated by this example?

As you move down your indifference curve,total utility decreases.

When the price of a good increases,all else held equal,which of the following does not occur?

The point on the budget line that reaches the greatest level of utility is that point where

Suppose a consumer allocates a budget to apples and oranges.Now,the prices of apples and oranges are increased by the same percentage.What change will happen to the budget line? What change will happen to the consumer's indifference curves? What will happen to the consumption of the two goods?

If the price of video games falls,then the substitution effect will cause a consumer to reduce her consumption of video games.

For a given budget,a consumer is assumed to

Suppose Jane has $100 to spend on either compact disks,which cost $10 each,or hamburgers,which cost $2 each. (A)Graph Jane's budget line for compact disks and hamburgers. (B)What is the maximum quantity of compact disks and hamburgers that Jane can buy with $100? (C)Show what happens to the budget line if the price of compact disks falls from $10 to $5.What is the maximum amount of compact disks that Jane can purchase now? Show the optimal quantities of compact disks and hamburgers Jane would consume now,assuming that compact disks are normal goods. (D)Suppose Jane has $150 to spend rather than $100.Draw one diagram where compact disks are normal goods and one where compact disks are inferior goods.

The slope of the budget line is always positive.

The slope of an indifference curve is equal to the

Derive a continuous individual demand curve using an indifference curve diagram and budget lines.Be careful to label your graphs completely.

Suppose that a consumer has a choice between hotdogs and video games.All of the following can lead to a rotation of the consumer's budget line except a(n)

When income decreases,all else held constant,which of the following occurs?

Exhibit 5A-3 -Refer to Exhibit 5A-3.Calculate the income of the consumer with this budget line if the price of good Y is $3 and the price of good X is $5.

A budget line identifies combinations of two goods that a consumer